Economic Developments - May 2017

Saudi Arabia to invest in renewable energy:  Saudi Arabia will develop 30 solar and wind projects over the next 10 years as part of the kingdom’s $50 billion program to boost power generation and cut its oil consumption. The country plans to produce 10 percent of its power from renewables by 2023. It also plans to generate an unspecified amount of electricity from nuclear plants.
The country is currently seeking bids to build 700 megawatts of wind and solar power capacity in a first round of tenders. It plans a second tender round for rights to build 400 megawatts more of wind power and an additional 620 megawatts of solar plants. Saudi Arabia will tender for the wind project in the fourth quarter at a project planned for the northern area of Domat al-Jandal.

The projects are part of a plan to transform the Saudi economy by weaning it off oil and creating new industries. 

Iran aircraft deal: European airplane manufacturer ATR said Thursday, 13 April, that it had sealed a $536-million sale with Iran Air for at least 20 aircraft, the ATR 72-600s, a twin-propeller aircraft, and that Iran Air had the option to purchase another 20. The deal also already has the approval of the U.S. Treasury, ATR said. (The US Treasury must approve aircraft deals when at least 10 percent of the airplanes' components are of American origin.)

Boeing Co. has already made a $16.6 billion sale already to Iran Air, while its European rival Airbus signed one estimated to be worth some 22.8 billion euros ($25 billion). The US Treasury has signed off on both those deals. Chicago-based Boeing also signed a $3 billion deal earlier this month to sell 30 737 MAX aircraft to Iran's Aseman Airlines, a firm owned by Iran's civil service pension foundation. The Boeing sales represent the first major deals for an American company in Iran since the 1979 Islamic Revolution and U.S. Embassy takeover.

Implications of restoration of wage-cuts in Saudi Arabia : While the obvious implication of the restoration of the 20 percent wage and allowance cuts announced in September last year will be an increase in the fiscal deficit, official sources have given a positive spin to this initiative; it is being said that the decision will help the kingdom avoid recession this year while smoothing the path toward economic reforms. 

Deputy Economy Minister Mohammed al-Tuwaijri said restoring the allowances was possible because Riyadh had made faster-than-expected progress in cutting its deficit. The gap was 26 billion riyals ($ 7 billion) in the first quarter of 2017, well below the government's projection of 54 billion riyals ($ 14.5 billion). Riyadh has forecast a deficit of 198 billion riyals ($ 53 billion) in 2017 and aims to eliminate the gap by 2020.

Analysts have estimated that restoring the financial perks would put around $13.3 billion to $21.3 billion annually additional spending money in the hands of Saudi nationals. Analysts believe that restoring the public perks would add half a percentage point to the non-oil economy this year, bringing its growth to around 1 percent. That could be enough for Saudi Arabia to avoid recession -- an important achievement for the economic reformers.

Observers continue to assert that the decision does not signal change in Riyadh's determination to eliminate its fiscal deficit. Instead, it may be a tactical move designed to help authorities implement the “Vision-2030” economic reform programme announced last year by Deputy Crown Prince Mohammed bin Salman. That programme includes steps such as new taxes, domestic fuel price hikes, the transfer of much of the burden of development projects to the private sector from the government, and the sale of a stake in national oil giant, Saudi Aramco.

Thus, the boost to consumer spending from the restored public will eventually be offset by new austerity measures. A tax on tobacco and sugary drinks will be introduced in coming weeks, raising up to 10 billion riyals annually. Officials also aim to hike domestic fuel and water prices in coming months, raising an additional 29 billion riyals. And a 5 percent value-added tax on most products is to be imposed at the start of 2018.


May 2, 2017

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About the Author

Ambassador Talmiz Ahmed

Former Ambassador of India to Saudia Arabia, Oman and UAE, monitors developments in the West Asian region.  

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.